Andrey Devyatkov: Transnistrian foreign trade: results of the first half of 2017

The Customs Committee of Transnistria has recently published the data on regional foreign trade in January – June 2017. This statistics is able to attract the attention of observers due to some important reasons. Firstly, the trade turnover of Transnistria used to fall dramatically in recent years. For instance, the export, which is of great importance for the local economy, fell by 20,5 % in the first half of 2015 and by 12,2 % in the first half of 2016 (in comparison with respective periods of previous years). Did this negative trend become sustainable? Secondly, like in 2016, when in April Chisinau decreased unilaterally the procurement price for electricity from the left bank, Moldova did not prolong the contract for electricity in April this year. For two months MoldGRES lost its key client. The contract returned to Transnistria in June, but only 70 % of it and with a smaller price. How did this influence the Transnistrian trade balance?

Thirdly, Tiraspol used to be very much dependent on trade with Moldova, the European Union and Ukraine, but (geo)politically it has tried to orient itself toward Moscow. At the same time while Russia remained an important partner for Tiraspol in terms of the whole trade turnover (due to gas deliveries), only about 8 % of regional export went to Russia in 2016. Is the distance between politics and economy increasing further? And last but not least, it would be interesting to find out whether the Transnistrian trade suffered from the deterioration of relations with Kiev, which happened in face of Ukrainian-Moldovan initiative to establish joint border and customs control at the Transnistrian segment of the border.           

While looking at the general trends in the Transnistrian trade, we can identify that the dramatic decline is to some extent halted (but not overcome at all). In the first half of 2017 export and import operations remained practically at the same level as in the respective period of 2016. Export decreased only by 2 % to 252 million dollar. As it has been already mentioned, Tiraspol lost the electricity contract, what at the end led to the decrease of export to Moldova from 120 to 90 million dollar. How was it compensated?

Transnistrian exporters increased their foreign supplies of metal production (from 54 to 70 million dollar), alimentary raw materials (from 30 to 40 million dollar) and engineering products (from 10 to 17 million dollar). The positive trend in metal production was achieved due to resumption of work of the Moldovan Metallurgic Plant in March, which had been going through dramatic crisis since 2011, but which is now willing to achieve with a new management the previous level of capacity utilization (up to 70 %). Like the right bank of Moldova, Transnistria is exporting to foreign markets alimentary raw materials like sunflower seeds, grain, maize, rape, apples and pears. The demand at international markets seems to be good in this segment now, at least for some of these products.          

Trade turnover with Russia decreased due to import, which fell from 225 to 170 million dollar. It can be explained predominantly as a result of falling gas prices. The gas price for Moldova, according to a formula, which is foreseen in the contract with Gazprom, was reduced from 230 to about 150 dollar per 1 thousand cubic meters. But probably because of reduced volume of electricity production at MoldGRES, which produces electricity by using the Russian gas, the physical import of gas was also diminished accordingly. Nevertheless, this decrease of import from Russia in monetary terms does not demonstrate anything, because Transnistria has not been paying for gas to Gazprom for many years. 

At the same time Transnistrian export to Russia increased – from 20 to 30 million dollar, and now Russia’s share in Transnistrian export amounts to 12 % (to compare: 8 % in 2016). It became possible due to increased export of engineering products (by 3,6 million dollar), alimentary raw materials (by 2,2 million dollar), textile and footwear (each category by 1 million dollar). It is difficult to say what the key reason is: relatively improved economic situation in Russia or the intergovernmental cooperation between Moscow and Tiraspol, which is aimed at making the market access for Transnistrian goods in Russia easier. Probably both factors are important.            

The high dependence on EU markets remained the same: about 36 % of Transnistrian exports went to the EU countries. The key commodity groups are: metal production (47 %), textile (21 %) and footwear (17 %). But in absolute figures the export to the EU fell (from 92 to 90 million dollar), while the import increased – from 79 to 88 million dollar.    

Political contradictions with Ukraine did not seem to influence mutual trade. Quite the opposite trend can be indicated: export to Ukraine grew from 23 to 36 million dollar in the first half of 2017. The same is with the import (from 52 to 75 million dollar).  

To sum up, it can be concluded that the Transnistrian economy “reached the bottom”. This expression was used intensively in Russia in recent years to describe the situation when the economy after a period of crisis ceases to shrink and reveals some symptoms of recovery. It is exactly what is happening now to the Transnistrian economy. Despite the reduced export of electricity (both in physical and monetary terms) the regional trade turnover remained almost at the level of the previous year. Besides, the recovery of economic growth can be indicated in such branches as metal production, alimentary raw materials, and engineering products, what compensated the downfall in the electricity branch.

Remarkably, the danger that MoldGRES will further lose any part of electricity supply contract with Moldova is real but not unavoidable: MoldGRES supplies the right bank in a sustained way with very cheap electricity (even in comparison with Ukrainian prices), and Kiev’s government will hardly be able to afford itself to subsidize even more the electricity export to Moldova in face of increased purchase prices of coal for Ukraine. The financial interest of companies, controlling reselling the electricity on internal market in Moldova, should also be mentioned: the delivery price of MoldGRES is substantially falling, while the internal prices in Moldova are stable or even increase.    

The positive trend in the Transnistrian economy can be guaranteed i.a. due to a more positive attitude of Transnistrian exporters, which depends to a very great extent on the activities of the government. The governmental policies are slightly becoming more liberal: for instance, the currency rate was at last brought in accord with market conditions (from 11,3 to 15 Transnistrian rubles for 1 US dollar in July). Now not the president, but the central bank will regulate the surrender of foreign exchange proceeds for Transnistrian economic agents. But the limit of this surrender remains the same: the exporters still have to sell 25 % of their foreign exchange earnings to the authorities. Nevertheless, now the central bank is able to be more flexible in regulating this sphere. Soon the government will also present the concept of its fiscal and tax policy, within which it is going to decrease the tax burden for the local businesses. All these decisions are becoming or could become a fundament for a sustainable recovery growth of the regional economy, along with external economic and political conditions, which will never be stable for Transnistria.